ex4_1.htm


    
      

    

    EXHIBIT 4.1

     

    THIS
CONVERTIBLE SECURED PROMISSORY NOTE AND THE SECURITIES REPRESENTED BY THIS
CONVERTIBLE SECURED PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS.  THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THE CERTIFICATE EVIDENCING THE PREFERRED STOCK INTO WHICH THIS SECURED
PROMISSORY NOTE CAN BE CONVERTED OR THE COMMON STOCK RECEIVED AS INTEREST
PAYMENTS MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER
LAWS.

    


    CONVERTIBLE
SECURED PROMISSORY NOTE AND LOAN AGREEMENT

    


    


    Company:  Espre
Solutions, Inc.

    Company Address: 5700 W.
Plano Parkway, Suite 2600, Plano, Texas 75093

    Closing
Date:  August 20, 2008

    Maturity
Date:  August 20, 2013

    Principal
Amount:  $5,000,000

    


    For value
received, Espre Solutions, Inc., a Nevada corporation, and any successor or
resulting corporation by way of merger, consolidation, sale or exchange of all
or substantially all of the assets or otherwise (the “Company”), hereby
promises (1) to pay to the Holder (as such term is hereinafter defined), or such
other Person (as such term is hereinafter defined) upon order of the Holder, on
August 20, 2013 (the “Maturity Date”), an
amount equal to Five Million Dollars ($5,000,000), as such sum may be adjusted
pursuant to Article 3 (the “Principal Amount”)
together with any and all accrued and unpaid interest, fees or other amounts due
and payable pursuant to this Note, and (2) to pay interest thereon with such
interest accruing from the date hereof on the outstanding Principal Amount of
this Note and payable on a monthly basis, commencing on the 1st
Business Day of the month following the month of issuance of this Note, and on
the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day), at the rate of
six percent (6.0%) per annum, subject to adjustment as set forth in Section 6.3
hereof (the “Interest
Rate”); provided, however, the interest payable on this Note for the
first three months shall be prepaid in cash on the Closing Date.  All
interest payable on the Principal Amount of this Note shall be calculated on the
basis of a year of 365 or 366 days, as the case may be, for the actual number of
days (including the first day but excluding the last day) occurring in the
period for which such interest is payable.  Payment of interest on
this Note shall be made in cash at (i) the principal office of the Holder or
such other place as the Holder may from time to time designate in writing to the
Company or, (ii) at the option of the Holder, in shares of Common Stock of the
Company, which shares shall be valued at the lesser of 90% of the VWAP (as such
term is hereinafter defined) on such Interest Payment Date or the Conversion
Price.  This Note may not be prepaid without the written consent of
the Holder.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    ARTICLE
1

    DEFINITIONS

    


    SECTION
1.1          Definitions.  The
terms defined in this Article whenever used in this Note have the following
respective meanings:

    


    (i)            
“Affiliate” has
the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended.

    


    (ii)           
“Bankruptcy
Code” means the United States Bankruptcy Code of 1986, as amended (11
U.S.C. Sec. Sec. 101 et seq.).

    


    (iii)           “Business Day” means a
day other than Saturday, Sunday or any day on which banks located in the State
of New York are authorized or obligated to close.

    


    (iv)           “Capital Shares” means
the Common Stock and Preferred Stock and any other shares of any other class or
series of capital stock, whether now or hereafter authorized and however
designated, which have the right to participate in the distribution of earnings
and assets (upon dissolution, liquidation or winding-up) of the
Company.

    


    (v)          
 “Closing
Date” means the closing date set forth in the first paragraph of this
Note.

    


    (vi)           “Code” means the
United States Internal Revenue Code of 1986, as amended.

    


    (vii)          “Common Shares” or
“Common Stock”
means shares of the Company’s Common Stock, par value $0.001 per
share.

    


    (viii)         “Conversion” or “conversion” means the
repayment by the Company of the Principal Amount of this Note (and, to the
extent the Holder elects as permitted by the opening paragraph of this Note and
Section 3.1, accrued and unpaid interest thereon) by the delivery of Preferred
Stock on the terms provided in Section 3.2, and “convert,” “converted,” “convertible” and like
words shall have a corresponding meaning.

    


    (ix)           “Conversion Date”
means any day on which all or any portion of this Note is converted in
accordance with the provisions hereof.

    


    (x)           
“Conversion
Notice” means a written notice of conversion substantially in the form
annexed hereto as Exhibit
A.

    


    (xi)           “Conversion Price” on
any date of determination means the price for the conversion of this Note into
Preferred Stock on such day as set forth in Section 3.1.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (xii)          “Credit Documents”
means this Note, the Security and Pledge Agreements and all other documents,
instruments or agreements executed and delivered by a Credit Party for the
benefit of the Holder in connection herewith.

    


    (xiii)         “Credit Party” or
“Credit
Parties” means the Company, and its Subsidiaries.

    


    (xiv)         “Disinterested
Director”  means a director of the Company who is not and has
not been an officer or employee of the Company and who is not a member of the
family of, controlled by or under common control with, any such officer of
employee.

    


    (xv)          “Event of Default” has
the meaning set forth in Section 6.1.

    


    (xvi)         “Governmental
Authority” means any federal, state, local, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or any court or arbitrator, in each case having jurisdiction over the applicable
matter and whether of the United States or another country.

    


    (xvii)        “Holder” means Dalcor,
Inc., a corporation organized under the laws of Panama, any successor thereto,
or any Person to whom this Note is subsequently transferred in accordance with
the provisions hereof.

    


    (xviii)       “Indebtedness” means,
without duplication, all monetary obligations of the Company or its Subsidiaries
(i) for borrowed money or with respect to deposits or advances of any kind to
the Company or its Subsidiaries (except for deposits or advances made by
customers of the Company or its Subsidiaries in connection with the sale of
goods or services in the ordinary course of business consistent with past
practice), and all prepayment premiums, penalties and any other fees and
expenses paid to satisfy such obligations, (ii) evidenced by bonds, debentures,
indentures, notes or similar instruments, (iii) upon which interest charges are
customarily paid (excluding trade accounts payable of the Company or its
Subsidiaries and other similar amounts payable by the Company or its
Subsidiaries in the ordinary course of business), (iv) under conditional sale or
other title retention agreements relating to property purchased by the Company
or its Subsidiaries, (v) issued or assumed as the deferred purchase price of
property or services wherein interest or similar charges accrue therein, (vi)
secured by any Lien on assets other than Permitted Liens, (vii) under interest
rate or currency swap or other similar transactions (valued at the termination
cost thereof), and (viii) under guarantees and arrangements having the economic
effect of a guarantee by the Company or its Subsidiaries of any indebtedness of
any other Person.

    


    (xix)          “Interest Payment Due
Date” means any date upon which interest is due to be paid by the Company
to the Holder, as set forth in the opening paragraph of this Note.

    


    (xx)           “Lien” means any lien,
mortgage, security interest, tax lien, attachment, levy, charge, claim,
restriction, imposition, pledge, encumbrance, conditional sale or title
retention arrangement, or any other interest in property or assets (or the
income or profits therefrom), whether consensual or nonconsensual and whether
arising by agreement or under any Law or otherwise, including without
limitation, an “adverse claim” as defined under Article 8 of Uniform
Commercial Code as enacted in the State of Nevada.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (xxi)          “Market Disruption
Event” means any event that results in a material suspension or
limitation of trading of the Common Shares.

    


    (xxii)         “Maturity Date” means
the maturity date set forth in the opening paragraph of this Note.

    


    (xxiii)        “Maximum Rate” has the
meaning set forth in Section 6.4.

    


    (xxiv)        “Note” or “Notes” means this
Convertible Secured Promissory Note and Loan Agreement or such other convertible
notes(s) exchanged therefor as provided in Section 2.1.

    


    (xxv)        “OTC:BB” means the OTC
Bulletin Board service of the Financial Industry Regulatory Authority,
Inc.

    


    (xxvi)        “Outstanding” when
used with reference to Common Shares or Capital Shares (collectively, “Shares”) means, on
any date of determination, all issued and outstanding Shares, and includes all
such Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Shares; provided, however, that any
such Shares directly or indirectly owned or held by or for the account of the
Company or any Subsidiary of the Company shall not be deemed “Outstanding” for
purposes hereof.

    


    (xxvii)       “Patent Security
Agreement” mean that certain Patent Security Agreement granted to Holder
by the Company and its Subsidiaries on even date herewith.

    


    (xxviii)      “Person” means an
individual, a corporation, a partnership, an association, a limited liability
company, an unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any agency or
instrumentality thereof.

    


    (xxix)        “Permitted Liens”
shall mean (i) Liens for taxes, assessments, and other governmental charges
not yet due and payable, (ii) Liens being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted,
(iii) Liens that are (A) with respect to real property, easements,
quasi easements, licenses, covenants, rights of way, utility agreements and
other similar restrictions on real property, (B) any conditions that may be
shown by a current survey, and (C) zoning, building and other similar
restrictions, and (D) inchoate workmen’s, repairmen’s warehousemen’s and
carriers’ Liens arising in the ordinary course of business, that in any case
described in this clause (iii) do not, individually or in the aggregate,
materially impair the current use or occupancy of the real property or impair
the marketability of title in the real property of the Company (including in the
case of leased real property, the leasehold interest) and (iv) Liens granted in
favor of Holders under the Security and Pledge Agreements.

    


    (xxx)         “Pledge Agreement”
means that certain Pledge Agreement granted to Holder by the Company and its
Subsidiaries on even date herewith.

    


    (xxxi)        “Preferred Stock”
means the shares of the Company’s Class C Preferred Stock, par value $0.001 per
share.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (xxxii)       “Preferred Stock Issued at
Conversion”, when used with reference to the securities deliverable upon
conversion of this Note, means all Preferred Stock and securities of any other
class or series into which this Note hereafter shall have been changed or
substituted, whether now or hereafter created and however
designated.

    


    (xxxiii)      “Principal Amount” has
the meaning set forth in the opening paragraph of this Note.

    


    (xxxiv)      “SEC” means the United
States Securities and Exchange Commission.

    


    (xxxv)       “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations of the SEC
thereunder, all as in effect at the time.

    


    (xxxvi)      “Security Agreement”
means that certain Security Agreement granted to Holder by the Company and its
Subsidiaries on even date herewith.

    


    (xxxvii)     “Security and Pledge
Agreements” means the Security Agreement, Pledge Agreement, Patent
Security Agreement and Trademark Security Agreement.

    


    (xxxviii)    “Subsidiary” or “Subsidiaries” with
respect to the Company, means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.

    


    (xxxix)       “Trademark Security
Agreement” mean that certain Trademark Security Agreement granted to
Holder by the Company and its Subsidiaries on even date herewith.

    


    (xl)           “Trading Day” means
any day on which (i) purchases and sales of securities on the principal national
security exchange or quotation system on which the Common Stock is traded are
reported thereon, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, as reported by Bloomberg
Financial Markets or a similar generally accepted national reporting service, as
the case may be, (ii) at least one bid for the trading of Common Stock is
reported and (iii) no Market Disruption Event occurs.

    


    (xli)           “Trading Market” means
the OTC:BB, or, to the extent the Company becomes eligible to list its Common
Stock on any other national security exchange or quotation system, upon official
notice of listing on any such exchange or system, as the case may be, it shall
be the “Trading Market.”

    


    (xlii)         “VWAP” means with
respect to any relevant Business Day, the volume weighted average price per
share (rounded to the nearest one hundredth of a cent) of the Common Stock on
the OTC:BB, or if trading prices are not reported on the OTC:BB any other
exchange or service wherein purchases and sales of the Common are reported, in
each case as reported by Bloomberg Financial Markets for the fifteen (15)
Trading Days ending on and including the last Trading Day immediately preceding
such Business Day.

    


    All
references to “cash” or “$” herein means lawful currency of the United States of
America.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    ARTICLE
2

    TRANSFER,
REPLACEMENT, PREPAYMENT, AND SECURITY

    


    SECTION
2.1         Registration of Transfer of
Notes.  This Note, when presented for registration of transfer,
shall (if so required by the Company) be duly endorsed, or be accompanied by a
written instrument of transfer in form reasonably satisfactory to the Company
duly executed, by the Holder duly authorized in writing.

    


    SECTION
2.2         Loss, Theft, Destruction of
Note.  Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and, in the
case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Company shall
make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated
Note, a new Note of like tenor and unpaid Principal Amount dated as of the date
hereof (which shall accrue interest from the most recent Interest Payment Due
Date on which an interest payment was made in full).  This Note shall
be held and owned upon the express condition that the provisions of this Section
2.2 are exclusive with respect to the replacement of a mutilated, destroyed,
lost or stolen Note and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement of negotiable instruments or other securities
without the surrender thereof.

    


    SECTION
2.3         Mandatory
Prepayment.   In the event that the Company sells,
exclusively licenses, conveys, assigns, leases, abandons or otherwise transfers
or disposes of, voluntarily or involuntarily (any of the foregoing being
referred to in this paragraph as a “transaction” and any series of related
transactions constituting but a single transaction), any of its properties or
assets, tangible or intangible (including but not limited to sale, assignment,
discount or other disposition of accounts, contract rights, licenses, chattel
paper or general intangible with or without recourse), except (a) in a
transaction in the ordinary course of the Company’s business, (b) a transaction
the proceeds of which are paid to the Holder or (c) with the prior written
consent of Holder, the Principal Amount together with all accrued and unpaid
interest, fees or other amounts due and payable pursuant to this Note shall be
immediately due in full.

    


    SECTION
2.4         Security.  This
Note is secured by the security interests, Liens, assignments and rights granted
to Holder in the Collateral (as defined in the Security Agreement) pursuant to
the Security Agreement and the Pledged Collateral (as defined in the Pledge
Agreement) pursuant to the Pledge Agreement.

    


    ARTICLE
3

    CONVERSION
OF NOTE

    


    SECTION
3.1         Conversion; Conversion
Price.  At the option of the Holder, this Note may be
converted, either in whole or in part, up to the full Principal Amount hereof
into Preferred Stock (calculated as to each such conversion to the nearest
1/100th of a share), at any time and from time to time on any Business Day,
subject to compliance with Section 3.2. The number of shares of Preferred Stock
(rounded to the nearest whole number of shares with .5 of a share being rounded
up) into which this Note may be converted is equal to the dollar amount of the
Note being converted divided by the Conversion Price.  The “Conversion Price”
shall be equal to $1.00.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
3.2         Exercise of Conversion
Privilege.  i) Conversion of this Note may be exercised in
whole or in part on any Business Day by the Holder by telecopying an executed
and completed Conversion Notice to the Company.  Each date on which a
Conversion Notice is telecopied to the Company in accordance with the provisions
of this Section 3.2 shall constitute a Conversion Date.  The Company
shall convert this Note and issue the Preferred Stock Issued at Conversion in
the manner provided below in this Section 3.2, and all voting and other rights
associated with the beneficial ownership of the Preferred Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice.  The Conversion Notice
also shall state the name or names (with addresses) of the persons who are to
become the holders of the Preferred Stock Issued at Conversion in connection
with such conversion.  As promptly as practicable after the receipt of
the Conversion Notice as aforesaid, but in any event not more than three (3)
Business Days after the Company’s receipt of such Conversion Notice, the Company
shall (a) issue the Preferred Stock Issued at Conversion in accordance with the
provisions of this Article 3 and (b) cause to be mailed for delivery by
overnight courier (x) a certificate or certificate(s) representing the number of
shares of Preferred Stock to which the Holder is entitled by virtue of such
conversion and (y) cash, as provided in Section 3.3, in respect of any fraction
of a Common Share deliverable upon such conversion.  Such conversion
shall be deemed to have been effected at the time at which the Conversion Notice
indicates, and at such time the rights of the Holder of this Note, as such
(except if and to the extent that any Principal Amount thereof remains
unconverted), shall cease and the Person and Persons in whose name or names the
Preferred Stock Issued at Conversion shall be issuable shall be deemed to have
become the holder or holders of record of the Preferred Stock represented
thereby, and all voting and other rights associated with the beneficial
ownership of such Preferred Stock shall at such time vest with such Person or
Persons.  The Conversion Notice shall constitute a contract between
the Holder and the Company, whereby the Holder shall be deemed to subscribe for
the number of shares of Preferred Stock that it will be entitled to receive upon
such conversion and, in payment and satisfaction of such subscription (and for
any cash adjustment to which it is entitled pursuant to Section 3.4), to
surrender this Note and to release the Company from all liability thereon
(except if and to the extent that any Principal Amount thereof remains
unconverted).

    


    (ii)            If,
at any time after the date of this Note, (a) the Company fails to timely convert
the Note in accordance with this Section 3.2 or (b) any third party commences
any lawsuit or legal proceeding or otherwise asserts any claim before any court
or Governmental Authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of this
Note into Preferred Stock or to own or vote the shares issued pursuant to any
such Conversion Notice, then the Holder shall have the right, but not the
obligation, by written notice to the Company, to require the Company to promptly
pay to the holder an amount equal to one hundred fifteen percent (115%) of the
aggregate of the Principal Amount, all accrued and unpaid interest and any and
all amounts due hereunder or pursuant to the Security and Pledge
Agreements.  The foregoing shall be in addition to and shall in no way
limit any and all rights the Holder has or may have with respect to any breach
by the Company of the provisions of this Note.  Under any of the
circumstances set forth above, the Company shall be responsible for the payment
of all costs and expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in defending itself in any such action or
pursuing its rights hereunder (in addition to any other rights of the
Holder).

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (iii)           The
Holder shall be entitled to exercise its conversion privilege notwithstanding
the commencement of any case under the Bankruptcy Code.  In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
Sec. 362 in respect of the Holder’s conversion privilege.  The Company
hereby waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. Sec. 362 in respect of the conversion of this
Note.  The Company agrees, without cost or expense to the Holder, to
take or consent to any and all action necessary to effectuate relief under 11
U.S.C. Sec. 362.

    


    (iv)           In
connection with a partial conversion of this Note, the Holder shall surrender
this Note to the Company in exchange for a new Note representing the remaining
outstanding Principal Amount.

    


    SECTION
3.3         Fractional
Shares.  No fractional shares of Preferred Stock or scrip
representing fractional shares of Preferred Stock shall be delivered upon
conversion of this Note.  Instead of any fractional shares of
Preferred Stock that otherwise would be delivered upon conversion of this Note,
the Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction multiplied by the VWAP on the Conversion
Date.

    


    SECTION
3.4         Adjustments.  The
Conversion Price and the number of shares deliverable upon conversion of this
Note are subject to adjustment from time to time as follows.  In case
the Company shall reorganize its capital, reclassify its capital stock,
consolidate or merge with or into another Person (where the Company is not the
survivor or where there is a change in or distribution with respect to the
Preferred Stock), sell, convey, transfer or otherwise dispose of all or
substantially all its property, assets or business to another Person, or
effectuate a transaction or series of related transactions (each, a “Fundamental Corporate
Change”), pursuant to the terms of which shares of stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation (“Other Property”) are
to be received by or distributed to the holders of Preferred Stock, then the
Holder of this Note shall have the right thereafter, at its sole option, to (x)
require the Company to prepay this Note for cash at one hundred fifteen percent
(115%) of the Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of prepayment, (y) receive the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property as is receivable upon or as a
result of such
Fundamental Corporate Change by a holder of the number of shares of Preferred
Stock into which the outstanding portion of this Note may be converted at the
Conversion Price applicable immediately prior to such Fundamental Corporate
Change, or (z) require the Company, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to the Holder a Note with
substantially identical rights, privileges, powers, restrictions and other terms
as this Note in an amount equal to the amount outstanding under this Note
immediately prior to such Fundamental Corporate Change.  The foregoing
provisions shall similarly apply to successive Fundamental Corporate
Changes.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    ARTICLE
4

    STATUS;
RESTRICTIONS ON TRANSFER

    


    SECTION
4.1         Restrictions on
Transfer.  This Note, and any Preferred Stock deliverable upon
the conversion hereof or Common Stock received as interest, have not been
registered under the Securities Act.  The Holder by accepting this
Note agrees that this Note and the shares of Common Stock to be acquired as
interest on and Preferred Stock to be acquired upon conversion of this Note may
not be assigned or otherwise transferred unless and until (i) the Company has
received the opinion of counsel for the Holder that this Note or such shares may
be sold pursuant to an exemption from registration under the Securities Act,
provided that the Company will not require opinions of counsel for transactions
involving transfers to Affiliates of the Holder or transfers pursuant to Rule
144 promulgated by the SEC under the Securities Act, or (ii) a registration
statement relating to this Note or such shares has been filed and declared
effective by the SEC.

    


    Each
certificate for shares of Common Stock or Preferred Stock deliverable hereunder
shall bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities
Act:

    


    “The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”).  The
securities may not be offered for sale, sold or otherwise transferred, except
(i) pursuant to an effective registration statement under the Securities Act,
(ii) pursuant to an exemption from registration under the Securities Act in
respect of which the issuer of this certificate has received an opinion of
counsel to such, or (iii) sales pursuant to Rule 144 under the Securities
Act.”

    


    ARTICLE
5

    COVENANTS

    


    SECTION
5.1         Conversion.  The
Company shall cause the transfer agent, not later than three (3) Business Days
after the Company’s receipt of a Conversion Notice, to issue and deliver to the
Holder the requisite shares of Preferred Stock Issued at
Conversion.

    


    SECTION
5.2         Notice of
Default.  If any one or more events occur which constitute or
which, with notice, lapse of time, or both, would constitute an Event of
Default, the Company shall forthwith give notice to the Holder, specifying the
nature and status of the Event of Default or such other event(s), as the case
may be.

    


    SECTION
5.3         Payment of
Obligations.  So long as this Note shall be outstanding, the
Company shall pay, extend, or discharge at or before maturity, all its
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
5.4         Preservation of
Existence.  So long as this Note shall be outstanding, the
Company shall and cause its Subsidiaries to (i) maintain their corporate
existence, rights and franchises in full force and effect in their jurisdiction
of incorporation, (ii) qualify and remain qualified as a foreign corporation in
each jurisdiction in which failure to receive or retain such qualification would
reasonably be expected to have a material adverse effect on the business,
operations, condition, financial or otherwise, or prospects of the Company or on
the ability of the Company to perform its obligations under the
Note.

    


    SECTION
5.5         Compliance with
Laws.  So long as this Note shall be outstanding, the Company
shall comply with all applicable material laws, ordinances, rules, regulations
and requirements of Governmental Authorities.

    


    SECTION
5.6         Inspection of Property,
Books and Records.  So long as this Note shall be outstanding,
the Company shall keep proper books of record and account in which full, true
and correct entries shall be made of all material dealings and transactions in
relation to its business and activities and shall permit representatives of the
Holder at the Holder’s expense to visit and inspect any of its respective
properties, to examine and make abstracts from any of its respective books and
records, not reasonably deemed confidential by the Company, and to discuss its
respective affairs, finances and accounts with its respective officers and
independent public accountants, all at such reasonable times and as often as may
reasonably be desired.

    


    SECTION
5.7         Liens.  So
long as this Note shall be outstanding, the Company shall not at any time
create, incur, assume or suffer to exist any Lien on any of its property or
assets, tangible or intangible, now owned or hereafter acquired, or agree or
become liable to do so, except for Permitted Liens.

    


    SECTION
5.8         Indebtedness.  So
long as this Note shall be outstanding, the Company shall not at any time
create, incur, assume or suffer to exist any Indebtedness, except:

    


    (1)           
Indebtedness under this Note; and

    


    (2)           
Current accounts payable now existing or hereafter arising out of transactions
(other than borrowings) in the ordinary course of the Company’s
business.

    


    SECTION
5.9         Distributions.  So
long as this Note shall be outstanding, the Company shall (except as required in
compliance with Section 5.14) not declare, make pay or set apart assets for a
fund to pay, or agree, become or remain liable to make or pay, or set apart
assets for a fund to pay, any dividend or other distribution of any nature
(whether in cash property, securities or otherwise) on account of, or in respect
of, any Capital Shares of the Company or for or on account of the purchase,
redemption, defeasance, retirement or acquisition of any Capital Shares of the
Company, whether now or hereinafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Company.

    


    SECTION
5.10      Disposition of
Assets.  So long as this Note shall be outstanding, the Company
may not sell, exclusively license, convey, assign, lease, abandon or otherwise
transfer or dispose of, voluntarily or involuntarily (any of the foregoing being
referred to in this paragraph as a “transaction” and any series of related
transactions constituting but a single transaction), any of its properties or
assets, tangible or intangible (including but not limited to sale, assignment,
discount or other disposition of accounts, contract rights, licenses, chattel
paper or general intangible with or without recourse), except in a transaction
in the ordinary course of the Company’s business or transaction the proceeds of
which are paid to the Holder.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
5.11       Fundamental
Changes.  So long as this Note shall be outstanding, the
Company shall not directly or indirectly, by operation of law or otherwise, (a)
form or acquire a Subsidiary or (b) merge with, consolidate with, acquire all or
substantially all of the assets or stock of, or otherwise combine with or
acquire, any Person.

    


    SECTION
5.12       Transactions With
Affiliates.  So long as this Note shall be outstanding, neither
the Company nor any of its Subsidiaries shall, directly or indirectly, enter
into any material transaction or agreement with any officer, director or
Affiliate of the Company or family member of any officer, director or Affiliate
of the Company, unless the transaction or agreement is (i) reviewed and approved
by a majority of Disinterested Directors and (ii) on terms no less favorable to
the Company or the applicable Subsidiary than those obtainable from a
nonaffiliated Person.

    


    SECTION
5.13       Reservation of Stock
Issuable Upon Conversion.  The Company shall at all times
reserve and keep available out of its authorized but unissued shares of
Preferred Stock, solely for the purpose of the conversion of this Note, such
number of its shares of Preferred Stock and Preferred Stock as shall from time
to time be sufficient to effect the conversion of this Note; and if at any time
the number of authorized but unissued shares of Preferred Stock shall not be
sufficient to a effect the conversion of this Note, in addition to such other
remedies as shall be available to the holder of this Note, the Company will
promptly take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval to file an amendment to the charter of the Company.

    


    SECTION
5.14       No
Impairment.  Except and to the extent waived in writing or
consented to in writing by the Holder or as otherwise expressly permitted under
the terms hereof, the Company will not, by amendment of its Certificate of
Incorporation or similar corporate charter or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Note and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the Holder
against impairment.

    


    SECTION
5.15       Use of
Proceeds.  No later than the Closing Date, the Company shall
use the proceeds from the issuance of this Note to (i) repay in full all
Indebtedness to La Jolla Cove Investors Inc., including but not limited to that
certain 6% Convertible Debenture dated July 15, 2008 in an original principal
amount of $2,000,000 and that certain Secured Promissory Note dated July 15,
2008 in an original principal amount of $1,750,000 and (ii) reimburse Holder’s
out-of-pocket expenses incurred in connection with the transactions contemplated
by this Note.

    


    SECTION
5.16        Board
Representatives. So long as this Note shall be outstanding, the
board of directors of the Company shall cause the size of the board of directors
to equal three and shall nominate two representative of the Holder to serve on
the board of directors of the Company.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
5.17       Right of First
Refusal.  At any time while this Note remains outstanding, if
the Company desires to issue any Capital Shares (a “New Issuance”) or
subject to Section 5.8, enter into any additional Indebtedness (“New Indebtedness”),
the Company shall first provide advance written notice to Holder setting forth
the proposed terms and conditions of the proposed New Issuance or New
Indebtedness (the “Issuance
Notice”).  Within twenty (20) days from the receipt of the
Issuance Notice (the “Offer Period”), the
Holder may, but shall not be obligated, to elect to purchase the New Issuance or
serve as the lender in connection with the New Indebtedness on the terms and
conditions proposed by the Company.  If the Holder elects not to
exercise its right under this Section 5.17 within the Offer Period, the Company
may, subject to compliance with the terms of this Note, offer the New Issuance
or the New Indebtedness to a third party on the same terms and conditions
offered to Holder for a period of thirty (30) days following the earlier of (i)
receipt of notice from the Holder of its election not to exercise its option
under this Section 5.10 or (ii) the expiration of the Offer Period (the “Expiration”).  If
the Company fails to close a transaction with a third party in connection with
the New Issuance or New Indebtedness within thirty (30) days of the Expiration,
the Company shall first re-offer such New Issuance or New Indebtedness to Holder
pursuant to the terms described above prior to re-offering the New Issuance or
New Indebtedness to any third party.

    


    SECTION
5.18       Further
Assurances.  At any time or from time to time upon the request
of Holder, the Company shall and cause its Subsidiaries to, at its expense,
promptly cause to be duly executed and delivered, to Holder such further
instruments and do or cause to be done such further acts as may be necessary or
proper in the reasonable opinion of Holder to carry out more effectively the
provisions of the Credit Documents.

    


    ARTICLE
6

    EVENTS
OF DEFAULT; REMEDIES

    


    SECTION
6.1         Events of
Default.  “Event of Default”
wherever used herein means any one of the following events:

    


    (i)           
the Company shall (x) fail to pay any principal of or interest on this Note as
and when the same shall be due and payable or fail to perform or observe any
other covenant, agreement, term, provision, undertaking or commitment under this
Note (not otherwise expressly addressed in this Section 6.1);

    


    (ii)           
any of the representations, warranties, or covenants made by the Company herein
or in any certificate or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Note shall be false or misleading in a material
respect at any time while this Note remains outstanding;

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (iii)           under
the laws of any jurisdiction not otherwise covered by clauses (vii) and (viii)
below, the Company (A) becomes insolvent or generally not able to pay its debts
as they become due, (B) admits in writing its inability to pay its debts
generally or makes a general assignment for the benefit of creditors, (C)
institutes or has instituted against it any proceeding seeking (x) to adjudicate
it bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors including any plan of compromise or arrangement or other corporate
proceeding involving or affecting its creditors or (z) the entry of an order for
relief or the appointment of a receiver, trustee or other similar person for it
or for any substantial part of its properties and assets, and in the case of any
such official proceeding instituted against it (but not instituted by it),
either the proceeding remains undismissed or unstayed for a period of sixty (60)
calendar days, or any of the actions sought in such proceeding (including the
entry of an order for relief against it or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its properties and assets) occurs or (D) takes any corporate action to
authorize any of the above actions;

    


    (iv)           the
board of directors of the Company shall fail to elect William Hopke as the
Chairman of the board of directors of the Company and appoint Mr. Hopke as the
President and Chief Executive Officer of the Company;

    


    (v)           
there shall occur any event or condition that in the good faith opinion of the
Holder results in a material adverse change in the financial condition,
operations, property or business prospects of the Company from the date hereof,
which impairs the Company’s ability to perform its obligations under this Note
or brings into question the validity or enforceability of this
Note.

    


    (vi)           the
Company or any third party claimant or Governmental Authority shall challenge or
contest in any action, suit or proceeding the validity or enforceability of this
Note, the legality or enforceability of any of the obligations or the perfection
or priority of any Lien granted to Holder pursuant to the Security and Pledge
Agreements;

    


    (vii)          a
case or proceeding is commenced against the Company seeking a decree or order by
a court having jurisdiction in the premises adjudging the Company a bankrupt or
insolvent a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code or any
other applicable Federal or state law, or appointing a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the Company or
of any substantial part of its property, or seeking the winding-up or
liquidation of its affairs is filed;

    


    (viii)         the
institution by the Company of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under the Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or of any substantial
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as and when they become due, or the taking of corporate action by the
Company in furtherance of any such action;

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (ix)           a
final judgment or final judgments for the payment of money shall have been
entered by any court or courts of competent jurisdiction against the Company and
remains undischarged for a period (during which execution shall be effectively
stayed) of thirty (30) days,  provided  that the aggregate
amount of all such judgments at any time outstanding (to the extent not paid or
to be paid, as evidenced by a written communication to that effect from the
applicable insurer, by insurance) exceeds Twenty Five Thousand Dollars
($25,000);

    


    (x)           
it becomes unlawful for the Company to perform or comply with its obligations
under this Note in any respect;

    


    (xi)           the
Common Shares shall no longer be reported on the over the counter market via the
NASDAQ OTC:BB, or shall be suspended from the NASDAQ OTC:BB, and shall not be
reinstated, or such suspension lifted, as the case may be, within five (5)
days;

    


    (xii)          the
Company shall fail to timely or cause to  file any periodic reports
pursuant to Section 13 or 15(d) of the Exchange Act of 1934, as amended (the
“Exchange
Act”), or otherwise required by the Exchange Act;

    


    (xiii)         the
Company shall default (giving effect to any applicable grace period) in the
payment of principal or interest as and when the same shall become due and
payable, under any Indebtedness other than this Note;

    


    (xiv)         any
Credit Party shall default under or pursuant to any of the Security and Pledge
Agreements or any other agreement, certificate, or document delivered under or
pursuant hereto.

    


    SECTION
6.2         Acceleration of Maturity;
Rescission and Annulment.  If an Event of Default occurs and is
continuing, then and in every such case the Holder may, in Holder’s sole and
absolute discretion, by a notice in writing to the Company, rescind any
outstanding Conversion Notice and declare that any or all amounts owing or
otherwise outstanding under this Note are immediately due and payable and upon
any such declaration this Note or such portion thereof, as applicable, shall
become immediately due and payable in cash at a price of one hundred eighteen
percent (118%) of the Principal Amount thereof, together with all accrued and
unpaid interest thereon to the date of
payment;  provided,  however, in the case of any Event of
Default described in clauses (iii), (vii), (viii), (ix) or (xi) of Section 6.1,
all amounts owing or otherwise outstanding under this Note automatically shall
become immediately due and payable without the necessity of any notice or
declaration as aforesaid.

    


    SECTION
6.3         Event of Default Interest
Rate; Liquidated Damages.  Upon the occurrence of an event of
an Event of Default, interest shall accrue on the outstanding Principal Amount
of this Note from the date of any such Event of Default and for so long as such
Event of Default continues, at the rate equal to eighteen percent (18.0%) per
annum.  In the event that the Company fails to comply with its
obligations set forth in Section 6.1(xii), in addition to the Holders other
remedies under this Note, the Company shall be obligated to pay Holder a
liquidated damages in an amount equal to 2% of the Principal Amount for each
thirty (30) days the Company fails to comply with such
obligation.  Such liquidated damages in an amount will be due on the
next Interest Rate Payment Due Date following the end of the month in which the
Company fails to comply with Section 6.1(xiii).

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
6.4         Maximum Interest
Rate.  Notwithstanding anything herein to the contrary, if at
any time the applicable interest rate as provided for herein shall exceed the
maximum lawful rate which may be contracted for, charged, taken or received by
the Holder in accordance with any applicable law (the “Maximum Rate”), the
rate of interest applicable to this Note shall be limited to the Maximum
Rate.  To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions of
this Note could give rise to or result in any actual or potential violation of
any applicable usury laws.

    


    SECTION
6.5         Payment of Certain
Amounts.  Whenever pursuant to this Note the Company is
required to pay an amount in excess of the Principal Amount plus accrued and
unpaid interest, the Company and the Holder agree that the actual damages to the
Holder from the receipt of cash payment on this Note may be difficult to
determine and the amount to be so paid by the Company represents stipulated
damages and not a penalty and is intended to compensate the Holder, in part, for
loss of the opportunity to convert this Note and to earn a return from the sale
of shares of Preferred Stock acquired upon conversion of this Note at a price in
excess of that price paid for such shares pursuant to this Note. The Company and
the Holder hereby agree that such amount of stipulated damages is not
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Note into shares of Preferred
Stock.

    


    ARTICLE
7

    REPRESENTATIONS
AND WARRANTIES

    


    SECTION
7.1          General Representations and
Warranties.  To induce Holder to accept this Note, the Company
makes the following representations and warranties to Holder:

    


    (i)            
Organization and
Qualification.  The Company is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the power to own its assets and to transact the business in which it is
presently engaged and in which it proposes to be engaged.  The Company
is duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each state or jurisdiction where the character of its
properties or the nature of its activities make such qualification necessary,
other than in such jurisdictions where its failure to be so qualified would not
have a material adverse effect on the business, operations, financial condition
or properties of the Company.

    


    (ii)           
Corporate Power and
Authority.  The Company has full corporate power and authority
to enter into, execute, deliver and perform its obligations under this Note
including without limitation obligations under Sections 5.15, 5.16 and
5.17.  The execution, delivery and performance of the Company’s
obligations under this Note have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval of the
shareholders of the Company; (ii) contravene the Company’s charter, articles or
certificate of incorporation or by-laws; (iii) violate, or cause the Company to
be in default under, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award in effect having
applicability to the Company; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Company is a party or by which it or its properties may
be bound or affected; (v) require any consent or approval of any Governmental
Authority; or (vi) result in, or require, the creation or imposition of any Lien
upon or with respect to any of the properties now owned or hereafter acquired by
the Company, other than the Liens created hereby in favor of Holder or Permitted
Liens.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (iii)           Legally Enforceable
Agreement.  This Note constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms subject, as
to enforceability, to general principles of equity and to principles of
bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors’ rights and remedies
generally.

    


    (iv)           Capital Structure of
Company.  Schedule 7.2(iv)
hereto states (A) with respect to the Company, (i) the correct name of the
Company and each of the Subsidiaries, if any, of Company, its jurisdiction of
incorporation and the percentage of its Capital Shares owned by the Company,
(ii) the number, nature and holder of all outstanding Capital Shares of or other
ownership interest in Company and each Subsidiary of Company, and the name of
all officers and directors of Company and each Subsidiary of Company, and (iii)
the number of authorized, issued and treasury shares of Company and each
Subsidiary of Company.  Except as disclosed on Schedule 7.2(iv),
there are no outstanding options to purchase, or any rights or warrants to
subscribe for, or any commitments or agreements to issue or sell, or any Capital
Shares or obligations or securities convertible into, or any powers of attorney
relating to, Capital Shares of either Company or any of its
Subsidiaries.  Except as shown on Schedule 7.2(iv),
there are no outstanding agreements or instruments binding upon any shareholder
of Company relating to the ownership of its Capital Shares.

    


    (v)           Debt
Obligations.  Schedule 7.2(v) sets
forth a true and correct list of all Indebtedness of the Company as of the date
hereof and intercompany Indebtedness between the Company and any
Subsidiaries.

    


    (vi)           Title to Properties;
Priority of Liens.  The Company and each of its Subsidiaries
has good and valid title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real property, and good title to all of its
other property, in each case, free and clear of all Liens other than Permitted
Liens.  The Liens granted to Holder pursuant to the Security and
Pledge Agreements are first priority Liens.

    


    (vii)          Full
Disclosure.  This Note and any other written statement of the
Company to Holder provided pursuant to this Note, does not contain any untrue
statement of a material fact or, (when taken as a whole with all other
information submitted by the Company or made available to, and reviewed by
Holder), omit a material fact necessary to make the statements contained therein
or herein not misleading.  There is no fact which the Company has
failed to disclose to Holder in writing which materially affects adversely or,
so far as the Company can now foresee, will materially affect adversely the
properties, business, prospects, profits or condition (financial or otherwise)
of the Company to perform its obligations under this Note.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    (viii)         Governmental
Consents.  The Company has, and is in good standing with
respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its properties as now owned or leased by it.

    


    (ix)           Litigation.  There
are no actions, suits, proceedings or investigations pending, or to the
knowledge of the Company, threatened, against or affecting it or the business,
operations, properties, prospects, profits or condition of the Company which (a)
relate to this Note, or (b) based on its good faith assessment of the outcome,
would reasonably be expected to have a material adverse effect on the business,
operations, financial condition or properties of the Company.  The
Company is not in default with respect to any order, writ, injunction, judgment,
decree or rule of any court, Governmental Authority or arbitration board or
tribunal.

    


    (x)           
Not an Investment
Company.  Company is not an “investment company” within the
meaning of the Investment Company Act of 1940, as amended, nor is it subject to
regulation under any federal or state statute or regulation which limits its
ability to incur indebtedness.

    


    (xi)           The
Preferred Stock, when issued on the Conversion Date and any Common Stock when
issued in accordance with this Note, will be validly issued, fully paid and
non-assessable, and not subject to any preemptive rights, rights of first
refusal, tag-along rights, drag-along right or other similar
rights.

    


    (xii)          Registration
Rights.  Other than as described in that certain Second Amended
and Restated Engagement Agreement dated February 12, 2008, between the Company
and Ackrell Capital, LLC, as of the Closing Date, no Person shall have any
demand, “piggyback” or other right to cause the Company to file any registration
statement under the Securities Act relating to any of its securities or to
participate in any such registration statement.

    


    SECTION
7.2         Continuous Nature of
Representations and Warranties.  Each representation and
warranty contained in this Note shall be continuous in nature and shall, in all
material respects, remain accurate, complete and not misleading at all times
while this Note remains outstanding.

    


    SECTION
7.3         Taxes.  All
tax returns required to be filed by the Company and its Subsidiaries have been
properly prepared, executed and filed.  All taxes, assessments, fees
and other governmental charges upon the Company, its Subsidiaries or upon any of
their respective properties, incomes, sales or franchises which are due and
payable have been paid.  The reserves and provisions for taxes on the
books of the Company and its Subsidiaries are adequate for all open years and
for its current fiscal period.  The Company knows of no proposed
additional assessment or basis for any material assessment for additional taxes
(whether or not reserved against) affecting the Company or its
Subsidiaries.

    


    SECTION
7.4         No Event of Default;
Compliance with Instruments.  No event has occurred and is
continuing and no condition exists which constitutes an Event of
Default.  Neither the Company nor any of its Subsidiaries is in
violation of any term of (i) any charter instrument or bylaw or (ii) agreement
or instrument to which it is a party or by which it or any of its properties
(now owned or hereafter acquired) may be subject or bound the consequences of
which would reasonably be expected to have a material adverse effect on the
business, operations, condition, financial or otherwise, or prospects of the
Company or its Subsidiaries (individually or in the aggregate) or on the ability
of the Company to perform its obligations under the Note.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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    SECTION
7.5         Solvency.  On
the Closing Date, (a) the amount of the “fair value” (as defined below) of the
assets of the Company will, as of such date, exceed the amount of all
liabilities of the Company, contingent or otherwise, as of such date, (b) the
Company’s debts will not be beyond its ability to pay as such debts mature, and
(c) the Company will not have, as of such date, an unreasonably small amount of
capital with which to conduct its business or an unreasonably small amount of
assets in relation to its future business.  For purposes of this
Section 7.5, “fair value” means the amount for which the assets of the Company
might be expected to be sold to a willing buyer by a willing seller, neither
being under compulsion, each having reasonable knowledge of all relevant facts,
with equity to both, with no definite time period required to consummate the
sale, and with buyer and seller contemplating the retention of the facilities at
their present location for continuation of current operations; “debt” means
“liability on a claim”, and “claim” means (i) any right to payment, whether or
not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured and (ii) any right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, secured or unsecured.

    


    SECTION
7.6         No Integrated
Offering.  Neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the Securities Act of
the issuance of the Securities to the Holder. The issuance of the Note to the
Holder will not be integrated with any other issuance of the Company’s
securities (pas, current or future) for purposes of any shareholder approval
provisions applicable to the Company.

    


    SECTION
7.7         No Shell
Company.  The Company is not, nor at any time during the twelve
month period immediately preceding the date hereof has the Company been a “shell
company,” as such term is defined in Rule 405 promulgated under the Securities
Act.

    


    SECTION
7.8         Survival of Representations
and Warranties.  All representations and warranties of the
Company contained in this Note shall survive the execution, delivery and
acceptance thereof by Holder.

    


    ARTICLE
8

    MISCELLANEOUS

    


    SECTION
8.1         Notice of Certain
Events.  In the case of the occurrence of any event described
in Section 3.4 of this Note, the Company shall cause to be mailed to the Holder
of this Note at its last address as it appears in the Company’s security
registry, at least twenty (20) days prior to the applicable record, effective or
expiration date hereinafter specified (or, if such twenty (20) days’ notice is
not possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice thereof, including, if applicable, a statement of
(y) the date on which a record is to be taken for the purpose of such dividend,
distribution, issuance or granting of rights, options or warrants, or if a
record is not to be taken, the date as of which the holders of record of Common
Stock to be entitled to such dividend, distribution, issuance or granting of
rights, options or warrants are to be determined or (z) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of Common Stock will be entitled to
exchange their shares for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale transfer, dissolution,
liquidation or winding-up.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          18

          
            

          

        

        
           


        

      

    

     

    SECTION
8.2          Expenses; Taxes; Attorneys’
Fees.

    


    (i)           
The Company agrees to pay or cause to be paid and to save the Holder harmless
against liability for the payment of all reasonable out-of-pocket expenses,
including but not limited to fees and expenses of counsel for the Holder
incurred by the Holder from time to time and (a) relating to any requested
amendments, waivers or consents to the Note or (b) arising in connection with
the Holder’s enforcement or preservation of rights under the Credit Documents or
other documents contemplated herein or therein, including but not limited to
such expenses as may be incurred by the Holder in the collection of the Note and
any litigation, proceeding, dispute or so-called “workout” in any way related to
the Note.  The Company hereby agrees to indemnify the Holder from and
hold it harmless against any and all losses, liabilities, claims, damages or
expenses incurred by it arising out of or by reason of any investigation,
litigation or other proceeding related to any use or proposed use of the
proceeds of the Note or the Company’s entry into and performance of the Credit
Documents or the other documents contemplated herein or therein (but excluding
any such losses, liabilities, claims, damages or expenses incurred by reason of
the gross negligence or willful misconduct of the Person to be
indemnified).

    


    (ii)           The
Company further agrees to and hereby do indemnify and hold harmless the Holder,
and each Affiliate and each director, officer, employee and agent of each
thereof (the “Indemnified Parties”)
from and against any and all losses, claims, damages, expenses or liabilities to
which any thereof may become subject, insofar as such losses, claims, damages,
expenses or liabilities (or actions, suits or proceedings, including any inquiry
or investigation or claims in respect thereof) arise out of, in any way relate
to, or result from a claim made by any third party in respect of the
transactions described herein or the financing contemplated hereby (whether or
not any Indemnified Party is a party to any action or proceeding out of which
any such losses, claims, damages, expenses or liabilities arise), and agrees to
reimburse the Indemnified Parties for any reasonable legal or other expenses
incurred by any thereof in or in connection with investigating, preparing to
defend, defending or otherwise participating in any such claim, action or
proceeding related to any such loss, claim, damage or liability, except that the
Company shall not be obligated to indemnify, hold harmless or reimburse an
Indemnified Party for any such losses, claims, damages, expenses or liabilities
to the extent that the same are determined in a final judgment by a court of
competent jurisdiction to have resulted primarily from the gross negligence or
willful misconduct of the Indemnified Party seeking such
indemnity.  The Holder hereby agrees to give the Company prompt
written notice of the incurrence of any loss, claim, damage, expense or
liability (or the institution of any action, suit or proceeding, including any
inquiry or investigation, or claim in respect thereof) which may give rise to an
obligation by the Company to indemnify an Indemnified Party pursuant to this
paragraph promptly upon becoming aware thereof.  The Company hereby
agrees that the Holder’s failure to give any such notice shall not excuse its
performance of its obligations pursuant to this Section 8.2, except to the
extent that any such failure shall be determined in a final judgment by a court
of competent jurisdiction to have resulted in material prejudice to the
Company.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          19

          
            

          

        

        
           


        

      

    

     

    (iii)           The
Company agrees to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the Holder to be
payable in connection with the Note, and the Company agrees to save the Holder
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions.

    


    (iv)           In
the event of termination adversely to the Company of any action at law or suit
in equity in relation to the Note, the Company will pay, in addition to all
other sums which the Company may be required to pay, a reasonable sum for
attorneys’ fees incurred by the  Holder in connection with such action
or suit.

    


    SECTION
8.3         Register.  The
Company shall keep at its principal office a register in which the Company shall
provide for the registration of this Note.  Upon any transfer of this
Note in accordance with Articles 2 and 4 hereof, the Company shall register such
transfer on the Note register.

    


    SECTION
8.4         Note
Registry.  Interest payable pursuant to this Note is intended
to be exempt from withholding to the extent permitted under the
Code.  All references to the Code shall be deemed to include
references to successor provisions and to regulations promulgated under the
Code.  The Company shall maintain a register identifying the holder
and beneficial owner of this Note.  Principal and interest under this
Note is payable only to the registered Holder of this Note, as identified in the
register maintained by the Company.  The Holder shall notify the
Company in writing of any transfer or change in beneficial ownership of this
Note and identify the transferee and new beneficial owner of this Note, and the
Company shall record such information in the register maintained by the
Company.  The Holder agrees that it shall submit to the Company such
documentation as may be required to comply with exemptions from withholding
under the Code.  Such documentation shall be submitted in such forms
and at such times as may be required by the Code and requested by the
Company.

    


    SECTION
8.5         Transmittal of
Notices.  Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Note
must be in writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon confirmation of receipt, when sent by
facsimile; (iii) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          20

          
            

          

        

        
           


        

      

    

     

    
      	
               
      

            	
              (1)

            	
              If
      to the Company, to:

            


    

    


    Espre
Solutions, Inc.

    5700 W.
Plano Parkway, Suite 2600

    Plano,
Texas 75093

    
      	
               
      

            	
              Telephone:        
      214-254-3708

            


    

    
      	
               
      

            	
              Facsimile:           
      214-254-3709

            


    

    


    
      	
               
      

            	
              (2)

            	
              If
      to the Holder, to:

            


    

    


    Dalcor
Inc.

    C/o
Oliver Chappaz

    Rue
General Dufour 20

    1204
Geneva

    Switzerland

    Telephone:+
41 22 809 6464

    Facsimile:+ 41
22 809 6465

    


    Each of
the Holder or the Company may change the foregoing address by notice given
pursuant to this Section 8.4.

    


    SECTION
8.6         Remedies Cumulative; No
Waiver.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Note, that the Holder
shall be entitled to all other available remedies at law or in equity, and in
addition to the penalties assessable herein, to an injunction or injunctions
restraining, preventing or curing any breach of this Note and to enforce
specifically the terms and provisions thereof, without the necessity of showing
economic loss and without any bond or other security being
required.  All covenants, conditions, provisions, warranties,
guaranties, indemnities, and other undertakings of the Company contained in this
Note, or in any document referred to herein or contained in any agreement
supplementary hereto or in any schedule given to Holder or contained in any
other agreement between Holder and the Company, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of the
Company herein contained.  The failure or delay of Holder to require
strict performance by the Company of any provision of this Note or to exercise
or enforce any rights, Liens, powers, or remedies hereunder or under any of the
aforesaid agreements or other documents or security or collateral shall not
operate as a waiver of such performance, Liens, rights, powers and remedies, but
all such requirements, Liens, rights, powers, and remedies shall continue in
full force and effect until all obligations owing or to become owing from the
Company to Holder shall have been fully satisfied and this Note has been
terminated.  None of the undertakings, agreements, warranties,
covenants and representations of the Company contained in this Note and no Event
of Default by the Company under this Note shall be deemed to have been suspended
or waived by the Holder, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and is signed by a duly authorized
representative of Holder and directed to the Company.  Nothing herein
contained shall at any time compel Holder to accept at any time any cure offered
or proposed by the Company or any other Person as to any Event of
Default.

    


    
      	 
      	 
      	 
      
	 
      	 
      	
              Initials

            


    

     

    
      
        
           


        

        
          21

          
            

          

        

        
           


        

      

    

     

    SECTION
8.7         Waiver.  The
Company to the fullest extent permitted by applicable law, for itself and its
legal representatives, successors and assigns, expressly waives presentment,
demand protest, notice of dishonor, notice of nonpayment, notice of maturity,
notice of protest, presentment for the purpose of accelerating maturity,
diligence in collection, and the benefit of any exemption or insolvency
laws.

    


    SECTION
8.8         Governing
Law.  This Note shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to
conflicts of laws principles).  With respect to any suit, action or
proceedings relating to this Note, the Company irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York sitting in the
City of New York and the United States District Court located in the City of New
York and hereby waives, to the fullest extent permitted by applicable law, any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum.  Subject to applicable law, the Company agrees
that final judgment against it in any legal action or proceeding arising out of
or relating to this Note shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which judgment shall be conclusive evidence thereof and the
amount of its indebtedness, or by such other means provided by law.

    


    SECTION
8.9         WAIVER OF JURY
TRIAL.  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE
PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS NOTE, THE SECURITY AND PLEDGE AGREEMENTS, OR ANY OTHER
DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
NOTE AND OTHER DOCUMENTS.  EACH PARTY HERETO (I) CERTIFIES THAT
NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS HEREIN.

    


    SECTION
8.10        Headings.  The
headings of the Articles and Sections of this Note are inserted for convenience
only and do not constitute a part of this Note.

    


    SECTION
8.11        Payment
Dates.  Whenever any payment hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day.

    


    SECTION
8.12        Binding
Effect.  Each Holder by accepting this Note agrees to be bound
by and comply with the terms and provisions of this Note.

    


    SECTION
8.13        No Stockholder
Rights.  Except as otherwise provided herein, this Note shall
not entitle the Holder to any of the rights of a stockholder of the Company,
including, without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the extent
converted into shares of Preferred Stock in accordance with the terms
hereof.

     

    
      	
            	 
      	 
      
	 
      	 
      	
              Initials

            


    

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    SECTION
8.14        Facsimile
Execution.  Facsimile execution of this Note shall be deemed
original.

    


    SECTION
8.15        Severability.  The
invalidity of any provision of this Note or portion of a provision shall not
affect the validity of any other provision of this Note or the remaining portion
of the applicable provision.

    


    SECTION
8.16        Amendment.  This
Note shall not be modified or amended, except pursuant to an instrument in
writing executed and delivered on behalf of the Company and the
Holder.

    


    [Signature Page
Follows.]

    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          23

          
            

          

        

        
           


        

      

    

     

    IN WITNESS WHEREOF, the
Company has caused this Note to be signed by its duly authorized officer on the
date of this Note.

    


    
      	 
      	
              Espre
      Solutions, Inc.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	
              /s/ Peter Ianace

            
	 
      	
              Name:
      Peter Ianace

            
	 
      	
              Title:
      Chief Executive Officer

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              Dalcor,
      Inc.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	
              /s/ Oliver Chappaz

            
	 
      	
              Name:
      Oliver Chappaz

            
	 
      	
              Title:
      Authorized Signatory and Attorney-in-fact

            
	 
      	 
      	 
      


    

    


    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          24

          
            

          

        

        
           


        

      

    

     

    [Convertible
Secured Promissory Note And Loan Agreement]

    


    


    
      	 
      	 
      	 
      
	 
      	 
      	
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          25

          
            

          

        

        
           


        

      

    

    


    EXHIBIT
A

    NOTE
CONVERSION NOTICE

    


    
      	
              TO:

            	
              Espre
      Solutions, Inc.

            


    

    5700 W.
Plano Parkway, Suite 2600

    Plano,
Texas 75093

    


    


    The
undersigned owner of the Convertible Note due August 20, 2013 (the “Note”) issued by
Espre Solutions, Inc. (the “Company” ) hereby
irrevocably exercises its option to convert $__________ of the Principal Amount
of the Note into shares of Preferred Stock in accordance with the terms of the
Note.  The undersigned hereby instructs the Company to convert the
portion of the Note specified above into shares of Preferred Stock Issued at
Conversion in accordance with the provisions of Article 3 of the
Note.  The undersigned directs that the Preferred Stock and
certificates therefor deliverable upon conversion, the Note reissued in the
Principal Amount not being surrendered for conversion hereby, [the check or
shares of Preferred Stock in payment of the accrued and unpaid interest thereon
to the date of this Notice,] together with any check in payment for fractional
Preferred Stock, be registered in the name of and/or delivered to the
undersigned unless a different name has been indicated below.  All
capitalized terms used and not defined herein have the respective meanings
assigned to them in the Note.  The conversion pursuant hereto shall be
deemed to have been effected at the date and time specified below, and at such
time the rights of the undersigned as a Holder of the Principal Amount of the
Note set forth above shall cease and the Person or Persons in whose name or
names the Preferred Stock Issued at Conversion shall be registered shall be
deemed to have become the holder or holders of record of the shares of Preferred
Stock represented thereby and all voting and other rights associated with the
beneficial ownership of such shares of Preferred Stock shall at such time vest
with such Person or Persons.

     

    
      	
              Date
      and time:

            	 
      	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	
              By:

            	 	 
      	 
      
	 
      	 	 
      	 
      
	
              Title:

            	 	 
      	 
      


    

     

    Fill in
for registration of Note:

    Please
print name and address

    (including
ZIP code number):

     

    
      	
            	 
      	 
      
	
              Initials

            	 
      	
              Initials

            


    

     

    
      
        
           


        

        
          A -
1

          
            

          

        

        
           


        

      

    

     

    SCHEDULE
7.2(iv)

    


    
      	 
      	 
      	 
      
	
              Initials

            	 
      	
              Initials

            


    

     

    
      
        
           


        

        
          A -
2

          
            

          

        

        
           


        

      

    

     

    SCHEDULE
7.2(v)

    


    
      	 
      	 
      	 
      
	
              Initials

            	 
      	
              Initials

            


    

    


     

    A - 3